Early Repayment
Early repayment means paying off part or all of your mortgage before the term specified in the contract. Banks may charge a fee for this operation because they lose the interest they would have collected over the remaining period.
What is the early repayment fee?
The early repayment fee is an amount charged by the bank when you want to pay off part or all of the loan early. This fee partially compensates for the bank's loss from uncollected interest.
How is it calculated?
The fee is usually calculated as a percentage of the amount being repaid early. It can be fixed (same percentage throughout the loan term) or variable (different percentage depending on the year of the loan).
Types of fees
Same percentage regardless of when you repay (e.g., 1% of the repaid amount)
Higher percentage in the early years, decreasing over time (e.g., 2% in year 1, 1% in year 2, 0% after year 3)
Fee expressed as the equivalent of interest for a number of months (e.g., 3 months interest)
Some banks offer free early repayment, fully or partially
Practical example
You have a loan of 500,000 MDL and want to repay 100,000 MDL early. If the fee is 1% of the repaid amount, you'll pay 1,000 MDL fee. If the fee is "2% – year 1; 1% – year 2; 0% – from year 3" and you're in the first year, you'll pay 2,000 MDL.
Tip
Before taking out a loan, check the early repayment conditions. A loan with a slightly higher interest rate but no early repayment fee may be more advantageous if you plan to pay it off sooner.